3101-topic4_08_4_colour

3101-topic4_08_4_colour - 1 Auditing Topic 4 Audit...

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Unformatted text preview: 1 Auditing Topic 4 Audit Liability Chapter 3 2 Auditors Liability - Overview 1. The auditors regulatory environment, including: Statutory liability Corporations Act and fair trading legislation Criminal liability 2. Duties of auditors - Reasonable Person Concept 3. Liability to clients due care 4. Liability to third parties under common law 5. Loss recoverable 6. Managing legal exposure & the expectation gap 7. Defences and exculpation 3 Audit Liability: regulatory environment Developments in case law which has expanded and then limited the realm of auditor liability Criminal liability has increased with new statutory offences, eg CLERP 9 and anti money laundering legislation Audit responsibility arises mainly IN COMMON LAW from contract and duty of care (action in negligence) Auditors duties and liability have evolved over time due to changed expectations including statutory changes. Interpret principles in light of particular facts. 4.1 Regulatory environment 4 Contractual and Statutory Duties Law of contract action can only be brought by the company against the auditor (privity of contract). Statutory duties: Ss.307-309: Duty to form opinion duty to report to members practice incorporated into statute; CLERP 9 breaches can lead to civil and criminal liability Prospectus disclosure Misleading and deceptive statements s1041H Common law duty to perform the audit with due care is more complex. 5 Sarbanes Oxley Act 31 July 2002 president bush signs the Sarbanes Oxley Act to tighten financial reporting, audit and corporate governance. As a result of Enron, The Sarbanes-Oxley Act provides for fines and imprisonment of up to 20 years for altering or destroying documents to impede an official investigation. 6 Bases of Auditors Legal Liability AUDITOR STATUTORY COMMON LAW cause of action TORT CONTRACT FRAUD Civil & Criminal CIVIL CRIMINAL PROSPECTUS s729 MISLEADING & DECEPTIVE s1041H TRADE PRACTICES & FAIR TRADING Ch 2 M STRICT OFFENCES FALSE STATEMENTS s1308 Negligence Defamation defence in s1289 Sources of legal liability 4.1 Regulatory environment 7 Corporations Act Registration of auditors Monitoring of auditors Auditor independence Auditor changes Appointment, Resignation/removal, Rotation Auditing standards Now have force of law S307A Reporting obligations Limits to auditor liability Caps Proportionate liability 4.1 Regulatory environment 8 Liability for fraud - Auditor Statutory law Common law Negligence Fraud Corporations laws Criminal liability Illegal Client Acts 9 Contract and negligence Auditor liability: contract & negligence CLIENT statutory duties are terms of contract AWA case CONTRACT THIRD PARTIES duty of care?...
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3101-topic4_08_4_colour - 1 Auditing Topic 4 Audit...

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